LG, SK pursuing 'exit strategy' to settle legal tussle
Johan de Nysschen, with Volkswagen, talks about direction the company is going with electric vehicles and the 2021 Atlas at the Chicago Auto Show, Feb. 6, in Chicago. AP-Yonhap
By Kim Yoo-chul
LG Chem and SK Innovation (SKI) have been embroiled in a lengthy legal battle over alleged theft of trade secrets relating to electric vehicle (EV) lithium-ion battery technology, an industry experts expect to generate over $23 billion by 2027.
The story dates back to when LG Chem, LG Group's crucial battery affiliate, filed a lawsuit against the SK Group affiliate in a Delaware court. the United States and a parallel action with the United States International Trade Commission (USITC) alleging “trade secret misappropriation.”
This was based on SK's hiring of over 100 former LG employees including engineers who were reportedly asked to relay “confidential facts” and business secrets during the hiring process; and downloaded thousands of documents from LG's database, according to company officials and court filings.
SKI flatly denied such allegations stressing growth in its battery business was largely due to the result of a steady investment in relevant patented technologies. Also, SK said the hiring was based on an open application process.
Regardless of the challenges and difficulties the two South Korean battery suppliers face during their legal battle, the stakes are very high and the two companies don't want a drawn out fight.
The battery industry is on an expansionary track and both are leading players in the segment, securing “big automakers” as their clients.
Any disruption in battery production would possibly disrupt the launch of advanced EVs by the world's leading carmakers. The battery industry is seeing the impact of the coronavirus epidemic, giving LG and SKI the “right chance” to lift their market share. But the reality is the two companies are exchanging a “war of words” over the conflict, regarding the issue as a “matter of pride.”
“This is a fight LG can't afford to lose. LG has no doubt SKI is also aware that losing this legal tussle will be a serious blow and the companies also acknowledge the estimated negative impact both in terms of national interest and the industry's relevant eco-system if the battle continues. More precisely, SKI wants to reach a settlement,” said an industry official.
While LG is seeking to block U.S. imports of SKI's batteries and related manufacturing equipment, the request is a necessary measure for LG before initiating an “exit strategy.” SKI also sued LG in South Korea seeking compensation in an apparent effort to use this as legal grounds ahead of the USITC ruling on the case.
As LG and SKI attempt to protect trade secrets at the international level, the upcoming ruling from USITC will matter, patent experts said. As seen in the blockbuster Samsung-Apple patent litigation case, the USITC is unlikely to rule in favor of LG Chem or SKI because the result of the upcoming ruling will have a flip-side and an adverse effects. If the USITC rules in favor of LG Chem, that will jeopardize SKI's plans to supply Volkswagen in the United States with batteries from Georgia, court filings said.
The United States presidential election is coming up and U.S. President Donald Trump wants to use earlier decisions by foreign companies to make huge investments in the U.S. as “political achievements” in terms of making a positive impact on the U.S. job market. From that standpoint, the South Korean companies don't want to see the case passed to the USTR.
President Moon Jae-in, who's been actively embracing the risk of “top-down personal diplomacy” with Trump to move forward with his ambitious rapprochement toward North Korea and its leader Kim Jong-un hopes to avoid “unnecessary noise” with Cheong Wa Dae officials asking LG and SKI's top management to settle the case both directly and indirectly, sources with knowledge of the issue told The Korea Times.
“There are big demand from SKI's major battery clients to resolve the conflict,” another official said.
A spokeswoman for SKI admitted the fight had already “cost them a lot” and added the SK unit was hoping to settle the conflict soon. In response to whether or not SKI plans to issue a public apology and to provide compensation if the company is asked to do so by LG, she declined to comment.
The SKI official said the construction of the company's Georgia plant is underway without any setbacks, which means SKI was likely hoping the USITC will rule in favor of the SK affiliate. If not, then its Georgia plant will be hit.